How Your Hotel's Pricing Strategy Can Affect Profitability

Michal Christine Escobar
Senior Editor (Hotels)
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Efficient hotel pricing strategy is a must-have for today’s hoteliers to increase their overall profitability. Hotel revenue managers should understand various aspects including distribution mix, demand forecast, competition pricing and consumers’ buying trends, etc. to manage pricing more effectively and to increase hotel profit.

If you are able to fill up all your rooms, but still struggling to see profit, you are not selling your rooms at the right price to maximize your room revenue. Let’s analyze some of the important components to come up with the right pricing strategy to increase hotel revenue.

Competition-driven pricing

This includes understanding your competitors’ pricing strategy. A smart revenue management tool can help you in this. It automatically tracks and lets you know your competitors’ pricing for a specific time period and recommends you the ideal price. Thus, you can make changes in your pricing across all the distribution channels to stay competitive. It helps you ensure that you don’t price your rooms too high or low compared to your competition.

Daily pricing

To maximize your room revenue, you can charge different rates for each night of a guest stay. For this, your PMS should help you with multiple rate types support in a single day. Daily pricing strategy is beneficial when you plan to sell room nights that are far into the future. Additionally, to make more profit out of room nights that are expected to be sold within 24-48 hours, you can implement an hourly pricing strategy. 

Use analytics

Get aggregated data on local market demand and understand the occupancy forecast to make changes in your pricing. This data can help you to evaluate your past performance so that you can set up the correct pricing strategy. In short, you must leverage business insights to price your rooms better to achieve improved profitability. 

Implement a dynamic pricing strategy

Sell your rooms at a higher price when your occupancy is higher and similarly at a lower price when occupancy is lower. Using a dynamic pricing strategy, you can easily increase your room rate during high seasons and lower your rates during off seasons.

Rework on your pre-negotiated rates with TA and Corporate clients

Don't be scared to rework your pre-negotiated or contracted rates with travel agents and corporate clients. Why? Such rates are mostly based on your previous years’ ADR and your ADR does not stay the same. Be more flexible and come up with quarterly or half-yearly contracts (revised pricing) based on the demand and performance of your hotel. This makes it easier for you to adjust your rates.  

Pricing based on length of stay

Consider implementing a length of stay based pricing model by looking at your demand, forecast and business on the books etc. Your revenue manager should cautiously modify your room pricing either based on maximum length of stay or minimum length of stay to enhance occupancy and to increase profitability.

Don’t forget your cancellation policy

Look at the cancellation rate at your hotel and try to understand how it isimpacting your revenue. A well-planned cancellation policy can help you increase your revenue. You may offer a lower rate for the maximum length of stay with a condition of no refund in the event of cancellation. Or you may adopt a no cancellation policy during peak season business.

Efficient pricing strategies help hotels sell the right room to the right guest at the right time and at the right price to maximize revenue. To come up with a set of ideal pricing strategies, hotels should leverage the power of the right kind of technology platform. For example, a smart cloud-based Hotel PMS that comes integrated with a revenue management tool could help hoteliers with rate management.